Medicare Prospective Payment System (PPS) for inpatient hospital care has used Diagnostic Related Groups (DRG) to pay "per case" since its implementation in 1983, except for psychiatric disorders. Per case payment has demonstrated its incentives for efficiency in Medicare's payment for inpatient medical care yet most of inpatient psychiatric care is paid per diem, including the new CMS psychiatric prospective payment system. For psychiatric admissions, DRGs explain a little less than 2% of costs per case. Recent research points to several contributing factors, among them failure to capture in billing data resource predictive characteristics, e.g., admission/severity status and treatments provided. The proposed research seeks to improve psychiatric DRGs (as implemented by CMS) and APR-DRGs (as developed by 3M Health Information Systems and used by Maryland's all payer per case payment system). This goal appears achievable with better use of billing data, plus supplemental data that could be captured from medical records. Also, the study will pilot the collection of inpatient psychiatric performance (quality) measures, including patient safety and post-discharge measures. The pilot will provide insight into the quality performance of the Maryland system under per case payment and make it possible to simulate potential effects on costs and payments of pay for performance for inpatient psychiatry. The cost of collecting additional data elements for casemix classification and for performance measurement will be assessed. The research will test hypotheses and use simulation modeling to examine the explanatory power of improved DRGs and APR-DRGs, effects of improved casemix measures on the distribution of revenues relative to costs at the hospital-level, and the relationship of performance to hospital and patient characteristics. The research will be undertaken in collaboration with the State of Maryland Health Services Cost Review Commission (HSCRC) and Maryland Mental Hygiene Administration (MHA). The HSCRC has authority under State law, operating with Medicare/Medicaid waivers, to set hospital rates for all payers in Maryland. The findings of this research are expected to be applied in Maryland by the HSCRC. In addition, the project has a Policy Advisory Committee with broad representation that will ensure national relevance.